Refinances Fuel Spike in Mortgage Activity

Even as more bad news on the economy came pouring in, mortgage loan applications continued to grow in number. According to the Mortgage Bankers Association, its market composite index, its measure of total loan application volume, increased 21.7 percent during the week ended August 10, from the previous week.

Broken down into parts, a 30.4 percent increase in refinance loan applications was off-set slightly by a 0.9 percent decline in home purchase applications.

“Amid substantial market turmoil last week, mortgage rates dropped to their lowest levels of the year, and refinance applications jumped more than 30% to their highest levels of the year,” said Mike Fratantoni, the group’s vice president of research and economics, as quoted in an Los Angeles Times article. “Despite these low mortgage rates, applications for home purchase have remained little changed through the summer.”

Based on data from mortgage finance company Freddie Mac, the average rate on a 30-year fixed rate mortgage plummeted last week down to 4.39 percent, excluding points, from 4.55 percent the week before. The drop was attributed to negative economic reports including a lower-than-expected GDP growth rate.

Still homeowners (who could qualify) flocked to refinance into that new lower rate, causing refinance applications to swell to 75.6 percent of all applications last week, up from 70.1 percent a week earlier.

The pool for refinances make shrink in coming months though as lending standards remain painfully tight and most who can qualify for a refinance have already done so. If borrowers with less-than-perfect credit are allowed back in the market within a few months, it’s likely that the refinance trend will continue, as the Federal Reserve’s Federal Open Market Committee essentially just promised to keep rates low for at least another two years as it anticipates more economic woe. So hurrah for low rates, but boo for the reasons they remain so near rock bottom!